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Charitable planning as a portfolio rebalancing tool

Tuesday, May 25, 2021 - 07:07

Highly appreciated stock can present your clients with both opportunities and challenges. You can help them offset the tax obligations and rebalance their portfolio by including charitable planning in their financial strategy.

‘Taxes become like dominoes’
Wealth Advisor Ryan Eckhardt consulted with longtime clients in their late 50s who didn’t want taxes to derail their early retirement plans. “Their portfolio was 100 percent company stock in a 401(k) that had amazing returns averaging about 25 percent for decades,” he recalls.

Ryan introduced his clients to Thrivent Charitable Impact & Investing (Thrivent Charitable) and its donor-advised fund offering when he discovered that they hoped to make an anonymous donation to their church’s upcoming property purchase.

“Taxes become like dominoes with stock like this, so including a charitable component is one of the best rebalancing tools you can find,” he says.

Ryan worked with the clients’ CPA to ensure they followed IRS rules related to the net unrealized appreciation (NUA) when converting stocks from the 401(k) into non-qualified shares. Using this approach, they eliminated significant capital gains and will spread out the tax deduction on their gift.

“Qualified charitable distributions are easy, but with qualified money in 401(k) stock, clients are typically unaware of tremendous tax savings opportunities,” he says. “Pairing NUA strategies with charitable giving can be a powerful tool that doesn’t require clients to wait until the required age of 70 ½ or older to implement charitable giving strategies."

Creating lifelong relationships
Financial Consultant Anthony Spangler helped new clients in their late 50s establish a donor-advised fund as well. It was part of a larger strategy to manage an inherited portfolio of highly appreciated securities.

“They had never heard of donor-advised funds before I proposed the idea, but it’s a great way to liquidate an asset that faces taxation,” he says. “The clients retain control of when and how much they give to charities they support. And they look forward to teaching their children to be good stewards by including them in the decision making.”

Anthony’s clients were able to avoid capital gains on the most valuable holdings by donating them to Thrivent Charitable. They could use the tax deduction of their overall gift to offset gains on other securities in the portfolio, which they will use as retirement income.

“Strategically, you can create a lifelong relationship with clients you may not have worked with otherwise,” Anthony says. “Anyone can put together a portfolio for clients, but when you can add the charitable options through Thrivent Charitable, it’s a differentiator.”

Contact our team of gift planners to discuss charitable solutions that can help your clients manage portfolios. Email us or call 800-365-4172 to get started.